I'm looking to buy my first flip at auction from homes that have been foreclosed. Most of the homes are currently occupied, however, so I don't know the conditions of the homes on the inside. Am I being too reckless in purchasing a home at auction without ever seeing the inside? What has your experience been?
No personal experience on buying auction homes, but it's a super risky path for a new investor. If you have the cash on hand to handle a surprise foundation issue or termite infestation, then go for it. But if you are trying to learn and you don't have the money for a $30,000 surprise, it's probably not in your best interest to buy sight-unseen until you have a better idea of the flipping process.
Auctions have been the only method I have found to make decent investments over the last couple years. They are higher risk/reward than MLS, FSBO and whole-sellers. Maybe have someone knowledgeable do a drive-by with you. @Cassi Justiz mentioned the showstoppers. Also, take a glance at the roof and HVAC to see if you need to factor replacement costs into your bid. It will likely need new paint, floors, appliances, etc but the discounted price should cover that and build quick equity. I'm proud of you for considering the deal. That's how you get off couch to learn and build wealth. I wish you the best.
It's one of those high-knowledge, high-risk propositions in real estate. If you can buy at the right price it can definitely be worth it. On the acquisitions side of your business, you have to be willing and able to handle everything up to an all-room full-gut interior flip. On the landlording side of your business, you also need systems in place to be ready to evict existing tenants or other residents as needed. Auction buys are usually not a good play for small investors working alone to pick up their first and second properties unless they're also highly experienced handymen with the proverbial bigger pockets.
You absolutely need to be able to see the exterior, and I'm talking physical presence, boots on the ground, roof inspection binoculars, strong residential construction knowledge. Not to be unkind, but the fact that you're even asking this question indicates that you're not sure you and your team could handle any sort of reasonable interior remodeling work as long as the exterior is sound, and that probably means it's not a great idea for you.
It's also not typically a great idea for my little business if I can avoid it, although I have bought properties at auction, have regretted buying them, but even in the worst cases luckily got out without losing my shirt because I bought at the right price.
Having purchased at auction, I highly recommend as a new investor, this not be your first effort without a seasoned pro by your side.
In fact, consider finding your pro first and letting them take the lead while you take the back seat to learn.
If you budget everything will be wrong with the property and need replacing. Then the ARV is still worth it, go for it. Otherwise, I always leave an out for inspections. I purchased a property on auction.com, but was able to do a walk through prior to it going to auction... So I had an idea what I was getting into.
We ALWAYS assume the worse. In the old days I had a guy who had no problem gaining access or contacting the company that winterized the property.
We have made a LOT of money on foreclosed/auctioned/abandoned properties that were not open for inspection. But then again we were prepared for the worse. Even if you inspect one you'll still be amazed how much more aggravation you will discover once you get in there & start tearing it apart, especially if someone has been there before doing a half***ed rehab.